“Because mining Bitcoin uses energy, does not mean that it is wasteful, to come to that conclusion requires a value judgment of the activity”--Paul Ebeling
The energy consumption of Bitcoin is by orders of magnitude less than that of the global financial system and when held up Vs the brilliance of gold, Bitcoin’s mining impact is a fraction of the environmental cost compared to the extraction of the precious Yellow metal.
Which is why, if mining Bitcoin is considered an activity worth pursuing, further investigation needs to be made as to the sources of the electricity it is consuming.
While ESG considerations do not factor highly on the decision-making matrix of most cryptocurrency miners, the combination of Beijing’s crackdown and pure circumstance have resulted in about 50% of all Bitcoin mining using renewable energy.
Nevertheless, it’s difficult for ESG-conscious investors to determine if investing in a particular cryptocurrency adds to environmental costs.
Because blockchains are decentralised, anyone can mine cryptocurrency whether through their own computers or purpose-built hardware, and use whatever source of energy they deem best, regardless of the environmental impact.
Decentralisation is both a feature and a limitation of cryptocurrencies, because it means that there’s no way to guarantee that mining uses renewable energy, and it will take far more than a tweet from Elon Musk to change that.
But dismissing cryptocurrencies outright on ESG concerns assumes that mining cryptocurrencies is inevitably energy intensive when that is not the case.
BlackRock is actively exploring methods to offer its clients cryptocurrency exposure and given its focus on ESG, it is more likely to invest in cryptocurrencies whose blockchains use environmentally sustainable models and renewable energy.
Whether Bitcoin will ever obtain the consensus it needs to shift to the more energy-efficient proof-of-stake remains to be seen, but ultimately may not matter, because other cryptocurrencies will rise to meet that challenge and that is what ESG investors should focus on.
Have a prosperous week, Keep the Faith!